The Economics of Alcohol Consumption

Most of us enjoy an occasional drink with friends on a night out, or on a date with that potential someone, to make us feel more brave and less awkward. Little do we think about the impact of our behaviour on others and THE ECONOMY. The idea that drunk workers become unproductive led to Britain's famously strict licensing laws in the First World War, which for years after ensured that pubs were shut at 11pm and on Sunday afternoons.

The economic benefits alcohol brings to society can be measured by the revenues generated in both the on and off-trade from the sales of alcoholic beverages locally, which in turn the Treasury receives a proportion of by taxation of company profits. HMRC received approximately £10 billion from alcohol duties in the financial year 2012/13. Benefits are also represented in the number of jobs created within any region where alcoholic beverages are produced and also indirectly for those who distribute alcohol as a commodity. Wine & Spirits Trade Association figures state that the UK alcohol industry directly employs more than 650,000 people in the production and retailing of alcohol and supports a further 1.1 million jobs in the wider economy'.

In alcohol policy, costs are typically framed in terms of harm to the individual and the wider society. This allows policymakers to focus on the tangible factors that justify government intervention in order to be remedied, such as the costs to the health service of treating alcohol-related disease, and to the criminal justice system of dealing with alcohol related crime and disorder

Alcohol consumption can affect work performance in several ways:

  • Absences - There is ample evidence that people with alcohol dependence and drinking problems are on sick leave more frequently than other employees, with a significant cost to employees, employers, and social security systems. In Costa Rica, an estimated 30% of absenteeism may be due to alcohol. In Australia, a survey showed that workers with drinking problems are nearly 3 times more likely than others to have injury-related absences from work.

  • Work accidents - In Great Britain, up to 25% of workplace accidents and around 60% of fatal accidents at work may be linked to alcohol. In India about 40% of work accidents have been attributed to alcohol use.

  • Productivity - Heavy drinking at work may reduce productivity. In Latvia, 10% of productivity losses are attributed to alcohol. Performance at work may be affected both by the volume and pattern of drinking. Co-workers perceive that heavy drinkers have lower performance, problems in personal relationships and lack of self-direction, though drinkers themselves do not necessarily perceive effects on their work performance

  • Unemployment- Heavy drinking or alcohol abuse may lead to unemployment and unemployment may lead to increased drinking.

The Government Alcohol Strategy claims alcohol-related harm is now estimated to cost England at £21 billion annually. This is broken down as:

  • NHS costs, at about £3.5 billion per year (at 2009–10 costs)

  • Alcohol-related crime, at £11 billion per year (at 2010–11 costs)

  • Lost productivity due to alcohol, at about £7.3 billion per year (at 2009–10 costs, UK estimate)

Underage drinking is interfering with children's development, affecting the nation's ability to respond to economic challenge in the future. The college aged may be the most difficult to educate about alcohol abuse because of drinking patterns established at an early age and susceptibility to advertising inducements.

However, if we take the gross aggregates we find surprisingly little evidence of negative impact on economic indicators. Does drinking weigh on economic growth? The country that consumes the most alcohol per head, Luxembourg, also has the highest GDP per capita. Of course, you might say; if you are rich, you can afford to spend more on drink. Nevertheless, is there an evidence for the opposite – does drinking make you poor?

In a sample of 34 OECD countries, alcohol consumption is compared with their GDP per capita. The richest half of countries drink 10.1 litres of alcohol per year; the poorest half 8.6 litres. So those extra beers don't seem to make a difference. Funnily enough, there is also little evidence of link between rainfall and alcohol consumption, an alleged reason for British drinking habits.

In my opinion, this only reflects on the blind nature of GDP as an indicator. Spending on guns is measured equally to money spent on say, visiting a cinema or a museum. It fundamentally fails to capture all the things that make life worth living.

Nevertheless, a more detailed economic analysis reveals that binge drinking bears a huge burden on individuals, as well as societies. The first lesson of economics: all actions have costs. Let that, however, not stop you from a having a good time. But with a limit.

Image from: